Chit Chat Stocks - Jon Bathgate - Optionality & Resiliency

Episode Date: April 27, 2021

Jon Bathgate joins us this week to discuss semiconductors, resiliency, and optionality. Jon covers his background and how he got to NZS Capital. Listen in after the interview to hear Brett and Ryan share their favorite stories from the week. Let's go! Follow Jon Bathgate on Twitter: https://twitter.com/jbathgate?s=20 Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Subscribe to our YouTube channel: https://www.youtube.com/c/ChitChatMoney Follow us on Twitter: https://twitter.com/chitchatmoney Visit our website to see more from your hosts Ryan and Brett: https://www.chitchatmoney.com Email us: [e-mail] Timestamps Interview 1st Half | (2:49) Interview 2nd Half | (30:24) WeWork, Apple Podcasts & more | (57:10) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today is Tuesday, April 27th. Today we have an interview with John Bathgate. He's an investor at NZS Capital, a firm that we really like kind of recently. John Rotonti kind of introduced us to that firm because they wrote a good paper called Complexity Investing, which I really recommend. The conversation was a lot of fun. A lot of stuff that was usually over my head, but he did a really good job explaining it. Yes, great introduction to semiconductors. It's not going to give you the whole overview because there's a ton of moving parts there. But I learned a lot about semiconductors and other stuff.

We kind of talk about their controversial opinion that moats are kind of dead. But we'll let them explain, you know, or let him kind of explain their philosophy there. It's one of the more convincing arguments I've ever heard. Yeah, not sure. We like the strategy a lot. Yeah, love their strategy, resiliency, and optionality. Not sure I agree with the moat part, but, you know, agree to disagree. everyone has uh everyone has their own opinion so uh but afterwards we have our show notes uh

like always we've changed the format around a little bit um we have our sales pitch because seven investing new wrecks are coming out soon i'm actually kind of excited for this i'm getting to the you know i used to just like uh i used to kind of look forward to them but i'm kind of eager to see them this time yeah each month and it's because their track record speaks for itself since inception over a year ago, up 16% average return versus the S&P 500. And that is in a time period when the S&P 500 has done really, really well. So even in a bull market, they're doing phenomenally. Also, some stocks have gotten cheaper over the last month, which makes it a little more exciting because then you know they are getting a little more value from those picks,

which is what we tend to like. Am I missing anything else? No, but you have to explain how they can take advantage. Code CCM at checkout. Use it. You get $10 off. It's normally $17 a month. You get $10 off that first month. So $7, try it out. If you like it, we think you will. Helps you with your research process. But if you don't, it's just $7. So you don't give that first month a shot here. Okay. Without further ado, here's our interview with John Bathgate. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital,

and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. today we are welcomed by john bathgate he is an investor at ncs capital um before we dive into ncs and kind of the strategy there why don't you give us a little bit about your background how did you get there maybe what kind of when did you get into finance to begin with yeah um so i've always been interested in investing like i trace it back to when i was in fifth grade i was allowed to uh do a project on like any subject in the world and i picked the stock market actually which

like in hindsight i was like a weird fifth grader i should have picked like the nba or like video games or whatever like most normal fifth graders but um i did the stock market and honestly just like it's like clicked for me right away my dad was actually an options trader and so i kind of like grew up around um just like investing in business analysis um and like still like honestly talk stocks daily with him um even even to this day um and so i went to college on east coast and went in thinking i was going to major in econ i figured that would kind of translate well to a job in finance and i got there and actually just like hated it and i just sucked at econ and so i um pivoted and um ended up majoring in math and i think since i majored in math i didn't do

like the kind of traditional like um you know undergrad finance route and so i actually graduated from college without a job and so i moved back to denver where we're based here at nzs and um was living in my parents basement and i applied for three finance jobs in denver like denver at the time was not like a booming metropolis for like the financial world um so i applied for an investment banking job a financial advisor job and then a research job at janice capital which is a long-only based in denver and um i think through some luck and some persistence i had like 20 interviews at janice and they ended up bringing me on as a research associate And that was in March of 2008. So my first day in the industry actually was the day that it was announced that Bear Stearns was going to be sold to J.P. Morgan for $2 a share.

And that was kind of like the unofficial beginning of the global financial crisis. And so I honestly got there. I was like, I'm going to be the first guy out of here. They're going to fire me in three months because the markets were imploding and there were layoffs throughout the whole industry and that kind of thing. But luckily, I was like the lowest paid guy on the floor. And so I was able to kind of like make it through the downturn. And then my career at Janus, like I kind of think, I think a lot of big companies are like this, but the asset management industry is like this also. Like it's a little bit of a war of attrition that if you can kind of like keep your head

down and do good work, then you can kind of be like the next person up for any role that opens up. And that was kind of the way my career unfolded. And so I started out on the tech team at Janus in 2008, just doing heavy modeling work and helping out the tech team with, honestly, the stuff that no one else wanted to do. And at the time, it was just luck that I was working on some of the iconic companies in the chip industry now, like TSMC and ASML and Texas Instruments were the first companies I ended up working on.

And then one of the analysts I worked for actually ended up leaving the firm about 18 months after I joined, and I had the chance to kind of step up and cover some stocks pretty early in my career. And I actually covered renewable energy, which at the time, I thought I was like on top of the world. It was like a growing sector, like everyone wanted to be green. It was kind of like this little bit of a green bubble, to be honest. And it turned out the whole renewable energy space kind of imploded in 2011. And that was actually a really good learning experience to watch a lot of stocks go down like 80 to 90% in a short period of time, just because honestly had um you know bad business models and tough economics um and so like like a lot

of renewables analysts did um back then there's a lot of um technology overlap between kind of like solar and semiconductors because it's a solar is a semiconductor based technology and a silicon-based technology um and so luckily when kind of like my coverage evaporated i had the chance to kind of like pivot and and cover semiconductors and so um that that's where i kind of started to cut my teeth covering tech in the semi space and then again like another war of attrition thing my my boss at the time who was britain johns who's actually one of the co-founders here at ncs capital ended up kind of like moving up into more of a leadership role on the team so i got to absorb his coverage and cover and do kind of like all the semiconductor and tech supply chain

coverage um at janice and then he ended up resigning and i took his role again as um as the lead of the team or the co-lead of the tech research team and so our job as co-leads were to kind of cover stocks and recommend stocks to we managed about 160 billion out of denver and kind of long only products and so i was responsible for recommending ideas there but also i'm setting the direction a little more just for overall tech research um for for the firm and tech strategy which was um which was really fun really good experience and so um i spent 12 years at janice and overall it was just it was an amazing experience like i got really lucky one to be around a lot of really good investors like there were investors that were more garp focused there

there were investors that were momentum, there were investors that were value, some were high turnover, some were low turnover. And like, it was just an amazing experience to see good investors that, you know, everyone kind of does this a different way. And there's like no one way to make money. And so, and then the other thing is, you know, given the asset base, like most of the companies that we were shareholders in that I covered, like we were generally kind of front page holders or, you know, top five holders, or in some case, the biggest shareholder of certain companies. And so just from like a management access and honestly getting to like, like having to learn the industry or any industry extremely quickly, like that was just

an amazing experience pretty early in my career to get that kind of exposure to tech in general. And so then in early, so I was at Janus for 12 years. And then in early 2020, I had the chance to kind of reunite with two of my really close mentors from Janus to join NZS Capital. And so they had formed NZS in mid-2019 and the portfolio had gone live kind of like the first day of trading in 2020. And I thought of it as just like a chance to give me part of something special, kind of like a once in a lifetime opportunity to start something from scratch with people that I really trust and admire. And I thought, you know, had a really good chance of succeeding. Um, and so, and also we get to like build our culture from scratch, which I think is like a really cool

attribute of, of being able to start something. Um, and so I joined, um, I joined NZS in early March of 2020. And like literally the, I had one week off between NZS and, uh, and, and Janice. And it happened to be kind of the week when like COVID really took the world by storm. And like the first Monday after I resigned from Janus, the market was down like 900 basis points that day. And so we were kind of like thrown into the fire to kind of get the portfolio ready for kind of the shock,

the market shock and economic shock of COVID. But it was actually kind of fun in a weird way because it was like having the band back together. There were four of us here now. We all worked at Janus together for more than 10 years. And so we've kind of been head down since, you know, since I joined in March, just working on the portfolio and, you know,

marketing and that kind of thing. And so that's kind of my story of, you know, how I got in the industry and ending up here at NZS. Yeah, it seems like you need to tell us if you're going to move jobs again, because it seems like the timing of that has been when the markets meltdown. Yeah, it is. It is like crazy. They're both in March. And it really is like amazing. The timing of like the two, obviously, kind of like recession type, you know, depression type bear markets we've had throughout my investing lifetime or both when I switched jobs. So that's a good point. Yeah. And for anyone unfamiliar with NZS, can you explain the investment strategy?

I know it means net zero sum. So can you explain that a bit, what your guys' philosophy is? Yeah. Yeah. There's like a few key points here and feel free to interrupt me if any of these don't make sense. So yeah. So the name of the firm is NZS Capital.

And so our overall framework for investing is we're generally looking for companies that create more value than they take. And so they're creating value for their customers, their employees, and they're also like not doing harm to, um, to society or to the environment and things like that. Um, and so that's, that's our, that's obviously we believe in this enough that we, you know, name, um, name the firm after it. And so we can talk about kind of what that means in terms of how we assess companies. Um, and I would say it's not like a pure ESG strategy, but there is like, we've just kind of been like practicing ESG, like subconsciously for a long time before it came into vogue. And so we're

certainly, um, I think we just want to be on the right side of time with the, uh, the companies that we're involved with. And so there is a little bit of an ESG element in terms of like, we're not going to be investing with companies that are like doing things that are really bad for society or the environment kind of thing. And I would say the fundamental kind of like premise that sets up our investment philosophy is we really view the world as a complex adaptive system. And so what that really means is like, is the world is inherently unpredictable. And so like generally, I think a lot of financial theory thinks in terms of like bell curves and like normal distributions, But in complex systems, you actually don't really see, you don't tend to see normal distributions.

You tend to see what are called power loss, which is like the 80-20 rule where like in investing, it could be, you know, a small percentage of stocks actually determine most of the market performance over time. Or in like in economics, it could be, you know, one or two companies tend to take most of the profits in a given industry. And that could be like, you know, Apple has 90% of the profits in the smartphone industry or two or three companies have the lion's share of digital advertising. And so generally, that's just the overall framing for how we look at the world. It's not through like, this is like an XYZ standard deviation event. It's that the world is an incredibly complex and really hard to predict Black Swan kind of outcomes happen a lot more often than you would think. And so the way we translate that into our investment philosophy is we really look for

companies that are adaptable is number one. And so we kind of try to look for companies that can thrive in any environment because we really need to learn how it's going to be for a company or what the iPhone cycle is going to be or whatever it is that's just not part of our framework. It's really like, what are the companies that are the most adaptable? Like a whole economy to digital. Like Chipotle that's honestly just pivoted their whole business in 2020 to digital and Chipotle and then like pushing people online and just like flourishing while like the restaurant industry is getting decimated. Like that'd be a really good example of something that would be, that I would consider, you know, adaptable. um and so the last piece of that is our um our portfolio construction philosophy is a little bit different also so we basically run two portfolios in one we have um what we call

the resilient part of the portfolio which is the the top half of the portfolio and that's um these are kind of like more like compounding value kind of companies um that we run very low turnover like you know like this is kind of a 10 turnover bucket of the portfolio um and the idea there. It's not playing to not lose, but certainly we're looking for companies that have kind of like a narrow range of outcomes. And then the bottom half of the portfolio is what we call the optionality tail of the portfolio. And that's almost more like a venture capital type model. Like we're really playing for a slugging percentage there more than having a high batting average. And so what we're looking for is asymmetry in companies that can be up like 3,

5, 10X and worrying more about the, or thinking more about the upside scenario than the downside scenario. And so we can go into the details of resilience and optionality more, but we actually, we cap the um we cap the the position size or optionality stocks at 150 basis points and we start our resilient stocks at 250 basis points and so in the middle of that um you know 150 to 250 basis point um part of the portfolio we literally don't own we don't own any stocks and so this is like a part of our process is a discipline that we don't let any stocks get what we call stuck in the middle where they don't have the asymmetry to belong in the optionality part of the portfolio, but then they're not resilient enough to be in the head. And so that's kind of

a big part of our investment philosophy also. So there's a lot in there, so I'll kind of pause there, but that's kind of like our overall framework. Yeah. I guess one thing to clear up, I'll ask about resiliency more in detail. When you say the 150 basis points and 250 basis points, that's minimum 250 basis points for the resiliency ones. Am I hearing that correctly or is it maximum? Yeah. Yeah. That's a good question. Yes. So our minimum position size is 250 and we And we also like, well, not if a stock is, you know, in the resilient part of the portfolio and it's actually underperforming and drifts down, you know, below 250 basis points. And we will make the decision, like, is this something we want to add capital to? Or is there a reason that it's kind of slipped into the middle?

And maybe, honestly, it's usually it'd be stuck in the middle and we would be more likely to sell it than let it kind of move into optionality land. But that's that's the way we think about it. OK, and then, yeah, can you go into resiliency more in detail? I mean, what do you look for? um you know if you can can you give any examples of how like you've kind of looked at a company in the past maybe or i mean i guess it's only been a year but anything at janus as well yeah yeah i should have said so we um we developed this framework together um especially um britain johns and brad singleton the founders of nzs that were they were kind of close mentors of mine at janus

um we developed this this framework um they actually wrote wrote this uh white paper that's actually on the ncs website now they wrote that in 2014 and so this is something we've kind of been been doing um for a while and so um in terms of resilience like we say you know when you see it which is a totally unsatisfying answer but there's a few things we look for one of them is like a relatively narrow range of outcomes and so like we don't want to predict the future but like an example would be um like microsoft is a resilient position where it's like the prediction that you know most enterprises will be renewing their office 365 subscriptions um you know 10 years from now and that azure will be one of the main two or three players in the cloud market you know

you know, five to 10 years from now, I think are like relatively what we call, we call these broad predictions where like, they're very likely to happen unless we're like living in like a Mad Max world where, you know, the economy has like gone off the rails or something. And so I would say that'd be a good example of something that's, that has a narrow range of outcomes that we would, we would view as resilient. And just like to take a step back, there are a few kind of characteristics that we don't necessarily look for these, but like tend to get into the resilient part of the portfolio. One of them is, is just mission criticality. It's like, you know, obviously every enterprise, you know, renews their Microsoft license, like 99.9% of the time,

unless you're going out of business or something. And so that would be, that'd be the first one. Another one would be like platform economics, like something like Google, where it's like, you get the flyer alphabet, where you get the flywheel going. And then to my point on power laws, like usually, especially in digital markets, if you can get the flywheel going, you know, usually one, two or three players take all the economics in a given market. And so something like that, we could consider resilient. And then there's also just kind of more like just companies that have scale and power law benefits. Like I mentioned, TSMC is a company we've followed for a long time. That's a company where it's not necessarily like a true platform in terms of like

a technology, like an internet based platform, but it really is like a company that's been able to extract like 90% of the profits in one market. And so I would put that, a stock like that in that bucket. And so that's generally the way we think about it. So it's just, you know, we won't only own like companies that have a narrow range of like earnings revisions or things like that we'll own semiconductor stocks and we own like a company like nvidia which honestly will have um you know pretty wide range in um in cycles and earnings and things like that um but um yeah yeah exactly some lumpiness it's not just like software stocks it's just like you know march up and grow 10 a year um but we look for something where we feel like the range of outcomes is relatively

narrow on like a five to 10 year horizon. Okay. So would it be fair to say that like the resiliency portion is companies that you think the outcome's a little more predictable, I guess, in terms of like the likelihood of success is a little higher? Yeah, I think that's right. I mean, and part of it, it's like I mentioned, it's a 10% turnover portion of the portfolio. And so these are really kind of like the set it and forget it stocks where like we really, we almost don't want to have to worry about whether or not they're going to be successful. Like I feel like everything we own in the head of the portfolio for one reason or another, like we just have a very high degree of confidence that, you know, whether it's also

like it's execution and the quality of the management team and the quality of the business that, you know, that it's going to be, you know, successful and relevant on like a five to 10 year horizon. Do, I mean, I know it's, I guess, well, the framework was set a while ago, but I know you guys are only a year in. So do companies ever evolve from sort of that optionality side to the more resilient side kind of as they grow? Yeah, that's a really good question. I would say once or twice a year, there'll be a company where we'll actually take it from the optionality part of the portfolio to the head of the portfolio. I can give you, so there was one, there actually, there were two examples last year where we did this. One was, was Lamb Research, which is a

semiconductor equipment company. And just the business models and semi-equipment have changed so much over the last five years, really. This is a company, we've actually owned LAM as an optional position for like six or seven years now. But given, especially how they handled the last down cycle, like the company was incredibly profitable through, there was a pretty tough down cycle in semi-equipment in 2019. And they actually just bought back a bunch of stock and they had like, they troughed like a 25% operating margin. And so you compare that to, this was a company, you know, for the last two decades, like you had to worry about them like losing money or breaking, being breakeven in a down cycle. And now they're minting money and

buying back stock through the cycle. So that's one example of one we crossed over. Um, the other one was T-Mobile where it started out as optionality. And then we actually, um, you know, they merged with Sprint and their, their spectrum portfolio, um, all of a sudden was like perfectly teed up for, um, for 5g. And so it's also just like a really dynamic company with an amazing culture, um, and value proposition. And so those are two where, um, you know, we're, we're crossed over and those are, those are pretty rare, but it's a really good question on, on, we do, um, you know, once in a while, uh, we'll make kind of the intentional decision to, to cross them over. Yeah, it feels like the ideal outcome where it starts as less than whatever 1% or 150 basis

point position and then it evolves. The ideal outcome, right? If you guys are right on your prediction there. Yeah, that's exactly right. And so, and we will, since we cap our optionality to 150 basis points, like there are some cases where the stock like would move in, if we just like let it express itself, it will actually trim the position every time it gets to 150 basis points. Like the classic example of that is Tesla, which we owned since the fund went live in early 2020. And that was up, you know, eight or nine X or whatever it was last year, but we kind of like consistently trimmed it because our view actually, I mean, maybe the range of outcomes on Tesla had narrowed on the margin, but like, I don't think it's actually

given that they're going to be, you know, the leader in the EV market yet, or like what the composition of the automotive market will look like in, you know, 10 years. And so that's when where they certainly executed well and like the stock increased dramatically, but we didn't cross it over. We just kind of trim that and keep it, you know, at the top end of optionality instead of bringing it into the resilient head of the portfolio. No, I think that makes a lot of sense where if you still view it as optional, you can't just force it and be like, well, it turned into a 3% position, you know. But if you still view it, you got to kind of have that objective view,

like, you know, the outcome is still here, a little risky, right? We got to, I don't know. It's kind of tucked away, but. How many portfolio companies do you guys have? Yeah, so we own like between 50 and 60 stocks. And so I should have brought this up when we were kind of walking through the framework. so we'll have like 15 to 20 resilient positions and um you know 30 to 40 optionality positions is like usually our sweet spot so that'll that'll flex honestly the composition of the portfolio

will flex a little bit just with like market conditions and like optionality was very expensive coming into this year if you look at um a lot of growth stocks and e-commerce and sas stocks they're trading it um you know pretty expensive valuations and so there are certain times where that will just kind of naturally, um, naturally flex. Okay. So on the optionality side, when you're picking companies for that sort of end of it, um, what do you look for? Cause I know it's easy for investors, I think, to sometimes say like, it's a bug word, right? Like there's, it's got plenty of optionality, like anything can happen, but that's not always, I guess, sometimes that's a bad thing or not as good as you might imagine. Um, so what do you look for?

Yeah. I mean, the main thing we look for is this idea of asymmetry where we literally are looking for stocks that can be up like three, five, 10X. And so the common thread, this isn't like universal across the optionality part of the portfolio, but commonly it's a very large market and with relatively sleepy incumbents and a new business model that is doing something a different way. And so, you know, some examples would be like Zillow and Redfin and, um, you know, in the real estate market. And this is a good example of companies that are also willing to experiment and like take on, like move into iBuying where they're actually like buying and selling homes, which is a very immature market with the unit economics. I mean, I would argue

probably not even totally proven yet. Um, but willingness to, to go out there and experiment. And actually we call it stacking on a new S curve where it's maybe they, um, you can move into an adjacent business line and actually, you know, bring on, um, a growth business that we hadn't even honestly forecast, you know, three or five years ago. That's another reason we try to not predict the future is like really dynamic companies will generally surprise you with the way that they innovate. And so you don't want to say this company has like, you know, X number of like revenue power, earnings power, um, in, in five years, because you might be too low on that number, but it's a really dynamic company. Um, so other ones would be, and I mentioned Tesla

is a classic optionality position, um, or something like Peloton, um, you know, is another one. It's, it's not all just like internet platforms. Um, but that, that does seem to be, um a pretty a pretty good place for us to fish and then they're also there are companies that we just really think are um dynamic and becoming platform-like but they could just be too expensive to own in the head of the portfolio so we generally will be i mean the valuation is actually the last thing we look at in our process but um something like an audien which is an amazingly dynamic company i mean it's incredible has an incredible business model especially for for its scale um but we also have to be realistic that the the valuation is stretched on any sort

sort of even going out, you know, multiple years on any sort of metric we would look at. And so that that's another one where Okta would be another one, which is an identity management platform that we've owned for a long time, where we just have honestly have never gotten that if ever, you know, pull back to seven times sales, it's like a 20 times sales multiples, that seems unlikely, you know, you could make it resilient if you ever get the shot. But so we'll, we'll run kind of the more expensive stocks in the optionality tailored portfolio, as well. And just, know if you ever get the chance that you can cross them over okay and does market cap or size uh matter at all when it comes to these optionality bets i know a lot of people kind of just worry

about you know the law of large numbers and stuff like that does that come into play or is it really each situation is unique yeah it actually um surprise actually thinking about this surprisingly we're we're pretty open to owning like you know 100 billion dollar plus market caps in the optionality tale um like something like square i mean audien is another one i mentioned or shopify um where the range of outcomes is still relatively wide maybe narrowing and honestly the valuations um are tough to argue that they're like resilient positions and one of the ways we think about resilient positions is if the stock declined 30 would be we'd be like salivating to add to it and you know some of these valuations honestly maybe there's more room than 30 percent um to fall and

so um there are i think we generally our sweet spot is kind of like in the 20 to you know 30 billion range for optionality, but we're perfectly willing to go up to 100 billion plus. And part of that really is just because you have to be looking at the TAM that you're looking at. If you're Square and you're going after, you want to see personal finances, your TAM, it could be trillions of dollars. Then I think that you can think about that differently than something that's further, it could be 100 billion market cap because it's already further penetrated into its addressable market. Does, I mean, I think I know the answer, but do you guys care a lot about management? Does that start to weigh heavily on your optionality bets more than your resiliency bets? Just because

there's so much that goes, you know, it really comes down to management to expand into new markets and stuff like that. Yeah. And a dynamic industry like that or something, you know? Yeah. Yeah. So we do, I mean, there's like two ways to think about management. Like we don't spend a ton of time with management in terms of like getting their outlook on the business because, um, we just generally, we've, we've, I've been lucky to meet with lots and lots of management teams during my career and management teams are generally more bullish on their business than we think they should be. And it's not because they're like bad people or anything. It's just generally like their, their job is to be bullish on their business. It's like,

if you're the coach of the team, you think your team's probably going to like win the Superbowl, you know, it's like everyone is, um, if you want to be kind of the cheerleader for your company, then you should be built bullish on your own business. Um, we, we do think a lot about culture. And so, I mean, one of the things we generally look for, I mean, founder, um, led companies generally, we like to own them in the optionality tail or in the head of the portfolio when we get the chance. That's a little more rare just because they tend to be so dynamic. And one of the things we also look for is companies that have more of a decentralized approach to running the company where the company is really managed like a lot of small businesses

that roll up into one company or the leader is willing to push the responsibility of decision making down into the more junior levels of the company. Because companies like that just tend to be more adaptable and more dynamic. And so that's something we've kind of studied over time. And so that's kind of our take on management. We think culture is incredibly important and the ability to take risk and fail quickly is a huge part of being part of a dynamic growth company. And so I do think it matters. We just don't ask them what they think their growth rate is going to be in 2022 or something like that, because it doesn't really matter that much. And we think that their odds of being right aren't any, you know, probably aren't any higher than our opinion or

a sell side analyst or whoever it would be. Another quote I saw from Uriah's paper was a barrier or moat today becomes a vulnerability tomorrow. And this kind of is, this is something where if you're sort of traditional school of value, it kind of is counterintuitive or counter to what you typically think. So I guess, why do you see it that way? And then are there any exceptions? Because so many people are convinced, including ourselves, to look for moats when investing, look for those big competitive advantages. Yeah, this is like a little bit of our cynical take on like Porter's Five Forces, which, you know, a lot of people use as a framework for evaluating competitive advantage. And our basic thing, if you look

at Porter's Five Forces, like two of the five forces are, it's kind of like the power struggle between you know your suppliers and your customers and so our cynical take a little bit is like the like legacy view of competitive advantage like especially looking at like more like industrial age businesses versus digital businesses is um in importers five forces like you're really trying to set up the company to extract more economic value than like your other other constituencies like your suppliers or your customers and when we think just generally in um you know more more like the digital age where the pace of disruption is really accelerating um and you know any company that's kind of like resting on their laurels or on a legacy mode and like printing fat margins should

be thinking about jeff bezos you know the classic quote from amazon um you know your margin is my opportunity and so um i also think that the world is so much more transparent than it used to be and so there are there are exceptions like i think anyone who's kind of built um we don't use the term notes but um kind of like a a flywheel platform like business in the digital age um i think i think that's like an exception i would say to um our take on moats or competitive advantage but we really try to think more about like who's who's adaptable and who's creating what value than they take then like who has a moat of like whether it's a patent portfolio or just they've like you know kind of positioned themselves in the industry to extract more value um than

everyone else i think that that's a little bit of a um it's just not the way we look at the world it's not for everyone but that's kind of worked for us okay uh we we want to talk semiconductors as well uh i'm glad you said you have a decade of experience that's that's fantastic we didn't know exactly so that's good to know uh but before we get to that we have to take a quick break all right right but we'll get to that on the second half cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh like this one so you don't have to worry about malware or when your kid downloads a song from a shady link.

And now all your computer can play is Red color, red color, where are you? All blocked thanks to advanced security included with Cox Panoramic Wi-Fi. Advanced security must be enabled in the Panoramic Wi-Fi app. Restrictions apply. Okay, welcome back in. Next up, we're talking semiconductors.

This is something that if you, we looked at the NZS sort of 13F online And when you look at the companies, a lot of them are chip related sort of semiconductor companies. So I guess at a high level, why is NCS sort of taking such a big bet on the semiconductor space? Why semiconductors? Yeah, I mean, so we've had about a third of the portfolio in semis, give or take, and kind of the broader semi ecosystem since inception. Like sometimes we honestly look at that, we think we're crazy. And sometimes we think it's like crazy low, and it should be like 40 or 50 why not so um there are a few things that go into our thinking on

the chip industry i mean the overall like thesis is just that semiconductors are having a renaissance um and really are like pushing into every part of the economy and so i think a lot of people and honestly i think like three or four years ago no one even like thought about chips and no one a lot of people like didn't even know really what a semiconductor was and that was like semis were apple's problem or cisco's problem or kind of like just a kind of like something relegated to like it and it hardware and now um i mean all of the a lot of the most important technology trends over the next um 10 years are like fundamentally enabled by advances in semiconductors whether it's the rise of the cloud the rise of artificial intelligence um the rise

of 5g um i mean the term like the internet of things or just the idea of everything being smart and connected and it's not just i think you're seeing this obviously with the chip shortage now um i mean like the the shortages in automotive have been um catching all the headlines with like everyone you can't buy an f-150 because ford can't get chips um but it's also someone like intuitive surgical who's building like an incredible platform for kind of the future of surgery i mean they reported earnings this week and they're worried about getting semiconductors and that's another great example of of like a technology that's fundamentally impacting the way um you know something is done and going back to our discussion on tams is a massive tam um and you

know you can't do you can't you know create a da vinci robotic surgery system without semiconductors so um that's kind of like the first point is just that there's this this renaissance of you know anything that isn't um digital now will become digital in the economy in the next five to ten years and semiconductors are kind of like the support layer of that like we kind of like to say that like software is eating the world but semiconductor and everyone knows that but semiconductors are like the unsung hero of the tech industry um and then another point i would make is is just like the business models and semiconductors we can talk about how they fit into our portfolio like the industry has really structurally changed over the last five to ten

years where this used to be like a very cyclical very high incremental margins companies would lose money you know with the trough of the cycle or have to raise capital um it was like a very difficult place to invest like when i started covering semis um earlier in my career people were like if you can learn how to make money in semis you can make money anywhere because this is like a tough industry to make money in um and now it really if you look at um we went through a really difficult down cycle um with uh like starting in kind of 2018 with the um with the trade wars and and the huawei ban and that kind of thing and the industry was like incredibly profitable like we always use as example but um texas instruments um at the trough of this last

down cycle was as profitable as microsoft which is the most profitable or which is obviously the largest software company in the world and so just like the idea that the semis are like this kind of you know cyclical um area where where the business models are tough and it's a hard place to make money i think it has kind of changed it really like a lot of high quality chip companies are are in the top decile in terms of, you know, in terms of free cash generation or profitability or anything like that. And so those are the two main things. It's also like we're running a diversified global growth fund and we compare semiconductors to industrials or other kind of parts of the market. And we just think they're a lot more attractive if you look at the growth

outlook, the quality of the businesses, the quality of the management teams. And so that's kind of how we've honed in on semiconductors so much is just this like rising resilience of the business and the businesses and the overall relevance of the industry is it's honestly just it's incredibly dynamic like the industry has been around for you know 60 plus years and I would say it's more exciting now than it's ever been. Right and a lot of people us included you kind of look at semiconductors and you just see it's like a black box you don't know any of the nuances so for generalists like us what are the few basic things maybe investors should know about the semiconductor industry yeah i mean so it's like a 500 billion dollar industry i think people

tend to paint it with a broad brush and like i think it is important to think about like the subtleties within the industry maybe one example would be um i mean there are like different cycles within the semi industry like if you're looking at a company like texas instruments i mean about two-thirds of their profits are coming from like the industrial and the automotive markets versus if you look at nvidia which is another you know really visible large cap in the space they don't don't do almost anything. They do some in automotive, but like their business is really driven by gaming and the data center. And so I think just like trying to take a step back and understand what companies do at the individual company level, I think is probably, you know,

the most important thing. And I would just say, it's hard to get all the subtleties of the industry without like following it for a long time. But I would just say, pay attention to the business models and pay attention to who is like really structurally profitable and has shown an ability to to do that over time um and showing ability to kind of like weather a down cycle because one of my frustrations seeing people that haven't um invested in semiconductors for for a long time and don't have kind of the history is like the semi-cycle is like this like boogeyman that's gonna come like spoil the party and like all of a sudden people even right now people are worried about um the semi-cycle like yet again i just feel like that this is the force for the trees because

the industry has become so dynamic um you know there's been multiple cycles over the last 10 years but the the semiconductor index the socks is up like 8x over that time and so if you can just kind of like hold buy amazing companies and own them through the cycle and not get shaken out at the bottom of the cycle like one of the great things about semiconductors is like i think it's a pretty easy thing to um predict that you know we call this a broad prediction again like five to ten years from now there'll be more chips consumed in the world than there were um this year and it might vary with cycles a little bit but like the demand is going to snap back it's not like it's like a commodity where it's going to like oil or copper or something where it can

can go into like a five-year down cycle and you have no idea when it's going to come back like corrections and semis are usually short and painful but but they are short because the industry needs chips and so um i would say if you're like looking at the space just just try to um you know look through the cycles and focus on um on the long term and on the quality of business models did you guys did you guys intentionally frame it as sort of this bet on the industry as a whole, or are you just kind of looking at each individual business and saying like, wow, we think this is poised for sort of a bright future. And then after a while you had kind of piled together a 30-year portfolio in semis. Yeah, that's a good question. It actually

was kind of a bottoms up process that we, I mean, one of the cool things about starting from scratch is we really got to build a portfolio from scratch with no legacy from our previous investing careers and so it was just um just the bottom of the process that we kind of went through every stock we wanted to own and semi-land and it turned out and also fit them into our our framework of what's resilient what's optional um and position sizing and it just ended up being a third of the portfolio and so we do kind of monitor that um and i think that um we probably don't want to get too high just for kind of like risk management purposes and it's also it's not all um chips i should say like we would put like cadence design systems in there which is really a software

company that feeds into the semi-industry um and like semi-equipment is different than just pure semiconductors and that kind of thing so um but that that is a good question it really was was more bottom stuff than anything else uh do you think uh i don't know if this is a question that would take an hour to explain but can you explain maybe the semiconductor supply chain at all uh because i know that is something people get really confused about i know you just mentioned like the um i forget what you even said the software uh for that one company i forget what his name is, but could you explain the supply chain a little bit? Because I know people look at like Intel, NVIDIA, TSMC, and they don't really know how everyone fits together.

Yeah, I can do that. So yeah, let's see if we can do this in like five minutes. So I guess the first example, I'll just do it through an example. I think that's the easiest way to get it. And so like the big pocket industry that you'd hear the most about are chip designers. And so that's companies like pure chip companies like an NVIDIA or a Qualcomm or an AMD and they actually design the chips. So they've got thousands of engineers designing chips. And so they use software to design those chips. It's like a CAD, you know, layout program, like similar to an Autodesk in, you know, in AEC and in architecture, except this is to build a chip instead of a house. And so there are two companies that do that. That's Cadence Design

Systems and Synopsys. And so if you're an engineer at Apple or NVIDIA or anywhere, you like go into work and you sit at your desk every day and you like live in like Cadence or Synopsys software. And so most chip designers are called fabulous chip companies. And so that would be someone like an NVIDIA, where they actually don't manufacture the chip themselves. They outsource that to TSMC primarily. They would also outsource the production of the chip to Samsung, who's kind of like the second source in the industry. They are generally designing on an architecture. And so there are multiple architectures in the industry.

ARM is like the really visible one that is in your smartphone or in your iPad. And Apple has adopted that. another M1 chip. So Arm, this is kind of a long-winded way to go through all this, but Arm is a licensing company. So they don't actually build chips. All they do is license their architecture to companies like Apple or Qualcomm. And then the other architectures would be something like x86, which is the Intel, kind of like the legacy Intel architecture where a lot of the PCs and server chips are built. And then the other ones would be like their GPUs, which are graphics processing units which we would see from nvidia or amd and those are chips that um were initially

built for gaming but now actually they're really pushing into the data center with it just turns out that artificial intelligence is actually like built to run on on gpus and nvidia was amazingly strategic to like pivot the business to go from just being a gaming company to supporting ai um and so that's like the basically basic overview if that all makes sense on um and i I guess the other steps in that, just one last quick thing is, so TSMC and Samsung actually build the chips. And so they have to buy equipment from the semi-equipment suppliers, which would be some companies like ASML, Lam Research, KLA 10 Core, Applied Materials, and Tokyo Electron. They're basically five major equipment suppliers. And so that's kind of how like digital chips work.

And so if you can think about digital chips versus analog chips, I think I can do like two more minutes of this and this will be the full review of the industry in seven minutes um so analog chips are so digital chips do computing functions like they think in zeros and ones and that's like um anything from the $20 chip that goes on your smartphone to the $200 chip that goes into your laptop like a you know a $2,000 chip that can be in a data center and so that's where like real like processing and like decision making is done and then there's another part of the industry which is called analog and that's where you see like um texas instruments analog devices microchip and companies like that and so um those companies actually take like the physical world

does not think in zeros and ones and so we actually have to do is take analog chips they will take like a temperature reading or a signal like a wireless signal that would go into your phone and they'll actually take that and they'll process it into a digital signal to allow a processor to um like compute on it basically and so um the difference between like digital analog is analog chips generally um sell for about 30 cents a chip and so it's very different than like a you know a digital chip thing that can cost like tens or hundreds or thousands of dollars and so the um the analog guys tend to play more in like automotive and industrial when you think of like the chips that go into your coffee maker or the chips that go into a tractor or the chips

that go into i mean they go into everything your nest thermostat your um your smart locks in your car your your key fob like they're just like they'll do your windshield wipers you know with your um when you like flick the thing in your car to turn your wipers on so that's um that's like like what analog and microcontrollers can do and so that i guess that's kind of like the the few minutes around the tech supply chain or the semi-supply chain if that um if any of that makes sense or hopefully that that's a decent overview i think i think that i think that clears up yeah some of the confusion people have because all the names get thrown around i mean it's obviously more nuanced than that but well there's i guess one thing i'll add really quickly is there

the other business model is called an idm which is an integrated device manufacturer and that's one like intel where they still design the chips and they own their own factories and so that's There are very few companies that do this now because building factories is so expensive, especially for digital chips, but that is a different business model compared to what you would call a phabless company like Nvidia where they outsource their manufacturing. I always hear people talk about ASML. So what makes ASML so valuable in that process or in that chain, I guess? Yeah. So ASML is really the company that's like driving moore's law right now and so if you hear like tsmc talking about like five

nanometer and that's going to go to three nanometer and these are like this is like incredibly complex stuff asml is the only company in the world that can actually um what they do is they shine light through a photo mask which is kind of like the stencil of the chip onto a wafer and so they're actually they're printing that like that feature that is the kind of like the three nanometer feature and so um they're it's it's just like this crazy artifact of um of history and innovation that they were the only company in the world that was able to kind of like do the amount of investment that was needed and honestly stay close enough to intel and samsung and tsmc to invest enough to come out with kind of like the next generation of called they're called

lithography systems that do this um that kind of print the the feature on the wafer um and so they used to have a competitor which was nikon the japanese company and nikon kind of like bowed out of the competition because it was just too it was too freaking hard um and so that's what's what's made asml so strategic is like there's like one company in the world that is basically powering moore's law right now um and so um you're seeing i mean actually they reported earnings this week and they're like sold out of their next generation of machines because all of a sudden everyone needs you know more chips for for everything for the data center for gaming i mean for automotive market and um you know they need asml equipment to be able to keep pushing

down moore's law and so it's the only kind of pocket of semi-equipment where it's like a pure monopoly like there are other there are other companies that are like really strong in certain pockets of um of semi-equipment but um lithography is the only part of it where it's like the most strategic because you're printing the feature size and also um it's it's literally a monopoly like they've got um of kind of like leading edge applications they have 100 share and they realistically will not have a competitor for the next um until china comes out with one and in 20 years or whenever that will be right and then does that come from patents or does that come from just it would take five billion or ten billion dollars or a thousand engineers to

catch up yeah i mean it's kind of both i mean it is just like an example of i mean i think it's like one of the crowning achievements of like humankind it's kind of like you can give someone a ton of capital um and and some smart people but can they like you know put a like a mars rover on mars or can you like build a commercial aircraft or something like if you look at like really the toughest engineering problems we've ever solved. And what's unique about ASML, if you actually go back to 20, I think it was 2012, they actually got an investment from all their big customers, like Intel, Samsung, and TSMC collectively bought about a quarter of ASML. And so they actually like collaborated for like six or seven years to roll out EUV systems, which is the next generation

of equipment. These are like the systems that cost $200 million right now. And so that's like something you can't really replicate is like this collaboration with like the leaders in the space that are also driving Moore's law. And so I think if ASML gave their book of patents to another company with like $50 billion, it would still take that company probably 15 or 20 years to replicate what they've done just because you would have to collaborate

with your customers and solve all these crazy engineering problems along the way to get to the point where we're, again, brushing up against the laws of physics to print the feature size at five nanometer and three nanometer. So that's just kind of the way

they've gotten to um to where they are so that makes sense fascinating i imagine that fits more into the resiliency framework than optionality yeah i mean it's a great example because honestly it's not like a the stock is always optically expensive um but it is it's just like a resilient business and they um have this like this incredible runway because this uv product cycle that they're in is going to last for six or seven years and they've got no competition and so um it's again we kind of call it like a broad prediction like as long as the world needs more like the digital chips, which we think they will, then I think, um, I think ASML will do well. And then you also have these kind of like knock-on effects now of we're bringing, um, we're diversifying the global

supply chain. Right. And so we're bringing more, uh, manufacturing on shore in the U S and so, um, that's like this additional revenue stream that we wouldn't have predicted, you know, three years ago. Right. That leads right into our next question. Thoughts on, uh, and this is the big issue that, you know, it's talked about on the front page of the newspaper, uh, TSMC versus intel what you know led the tmc winning tsmc winning uh and do you think you know intel's kind of announced that they're trying to fight back how do you think about that dynamic yeah tsmc is kind of like a classic um power law company i would say what really is like a company that gets the the flywheel going and they i mean we kind of watched this develop over the

last um 12 years but they really like hit their inflection when smartphones ramped up and like especially apple and the iphone like apple was a huge customer for tsnc um and the iphone kind of like hit its stride you know in the beginning of of last decade and all of a sudden they just became um just like bigger they're the only pure play foundry first of all i guess at the leading edge which matters but then they also um they just kind of got the flywheel going where it's like they're bigger than all their peers they can you know reinvest that more quickly they're amazingly customer centric and they also have this ecosystem and so when you're like the center of gravity the whole ecosystem wants to be close to you and that's like the software companies like

cadence and synopsis or arm, which is like the big, the big, um, architecture, like everyone wants to be close to TSMC to make sure that like the chips built on their kind of like IP and software can actually be manufactured the way that their customers want. And so, um, it was like this company that just hit escape velocity. And then all of a sudden you've kind of got to, you know, the end of last decade and they had, um,

like 90% share of like of leading edge, um, chip manufacturing. And so I think it's just like a classic case study of, of, um, you know, not really living in like the normal distribution of like standard deviation events it's like it's kind of more like the 80 20 rule and power laws where um you know in digital businesses usually one or two players in this case one player can extract you know almost all the profits um and so then going back to intel it's there there are a few things so intel's actually tried to do this um for a long time so they um probably in 2014 or 15 they um they announced they're going to work with the company altera which was a public um fabulous chip company

and they actually moved from tsmc to intel and it was like really high profile this was at the 14 nanometer node. And Intel just botched it. They never got the manufacturing right. And they actually ended up acquiring Altera, I think, in part to sweep it under the rug that this founder relationship didn't work out. And the reason it's hard to replicate is because, I mean, I made this point already, but TSMC is just amazingly customer-centric. They really know how to do customer service. They know how to take a customer's design and get it into the fab and get it manufactured. And Intel, honestly, is a little bit more of a stubborn organization. I think they have a hard time listening to their customers and doing it the way their customers

want to do it versus the way Intel wants to do it. And so now, I mean, I think Pat Gelsinger as a new CEO of Intel has seen, I mean, there is a need for like more foundry capacity in the US, like talking about the way the industry has evolved, like most leading edge chips, almost all of them are built in Taiwan. And it's like crazy to like the chips on like a, like an F-35 strike fighter are built in Taiwan, both in case we like have some sort of a conflict with China, but also just because there are like, I mean, there was an earthquake off the coast of Taiwan, I think last week and so it's like you can't just have everything being built in one place i think everyone's kind of realized that and so redundancy as an engineer yes yeah exactly i mean it's like

the only strategic industry where like everything in the world is built in one place it's like the automotive industry doesn't like build all the cars in like one geography you know obviously because it's more expensive to transport them than chips are but still it's like the redundancy is exactly right um but so i think pat elzinger realizes that um this is kind of intel's chance step in and fill a need and try to be a foundry to, especially to US companies. And they're reaching out to the automotive companies and things like that. I think their ability to do this and compete head to head with TSMC at the leading edge, I think the odds of them being successful are very, very low just because first of all, Intel's technology is already two years

behind TSMC's. And I don't really see that gap closing because TSMC is moving extremely quickly and they haven't executed as well. And so if you're like Apple and you're debating whether or not you want to work with intel or not like you already have the best technology at tsmc and are the most customer centric and they actually are building fabs here in the u.s now and so the only reason i think we would work with intel is if um it's something that needs to be built on u.s soil like for um and it's like a little more like lagging edge like company technology that's maybe four or five years old and so i think that's where intel is probably going to kind of step in and they i mean automotive is a great example where like they don't use like the really bleeding edge

technology because, um, automotive parts like can't fail, you know, it's like zero failures per million. Um, because if you're a part of your, um, you know, and if your chip in your car fails, it's very different than your chip and your smartphone failing in terms of the ramifications of that. Right. And so, um, I think that's, we're going to tell the chance of being really successful. And so, um, that is actually really profitable business, but, and that's, that's not going to be that painful for TSMC. I think there's like plenty of foundry revenue to go around given like the magnitude of the shortages we're seeing now in, in chips. And so, um, that that's kind my take on it is I don't think Intel takes on TSMC head on at the very leading edge. I think

people who think they can, I think probably don't understand all the subtleties of it, but that doesn't mean they can't play a role in it. And I think like Intel has kind of flirted with this business over time, but like, they're obviously really serious about it now. And this is kind of going to be a huge part of Pat Gelsinger's strategic focus. This was on their earnings call last night is, is engaging with as many family customers as possible and putting 20 billion worth of CapEx behind it. And like being like, like we're here for real this time. It's not just us flirting with like two or three customers kind of thing. Right. So, or go ahead, Ron.

So you said they're more customer centric. Who are those customers? You mentioned Apple for TSMC, but is it like, is NVIDIA and AMD, are those like customers as well? Yeah. Yeah. So it's basically the top. I mean, most of the biggest, I mean, ironically, Intel is actually one of the biggest customers because Intel actually outsources a lot of their manufacturing, but it is, it's like the biggest chip companies in the world that don't own their own

fabs. So all the biggest fabulous companies all rely on TSMC. So that would be... I mean, Apple Air is the biggest customer. Actually, Huawei was a big customer, but they can't build there anymore because of geopolitical reasons. But yeah, you go down the list. It's like NVIDIA, AMD, Qualcomm, MediaTek, which is in Taiwan, which is actually a huge maker of smartphone and kind of like smart home chips. And then the other big players now are Google, which honestly is a really big chip business, but it's called the TPU, which is their kind of like AI processor for the cloud. And they actually announced this week, They just came up with their own chip for YouTube, actually, for video compression.

And then same thing with Amazon. Amazon is doing a lot of their own chips now. And so the big cloud guys are increasingly becoming really important customers for TSMC, which is a big change and kind of speaks, I would say, to the overall renaissance in the industry. This stuff is so strategic that they feel like they need to do it in-house versus relying on Intel or NVIDIA or whoever to do it. It's interesting.

A lot of moving parts. I think that's all the questions I have on Samish. Okay. Wrap up questions. What is one financial saying that you disagree with? Yeah. One that we, I don't know if I disagree with it, but one saying that we, or one term we actually don't use at NZS is we don't use the term conviction. And so, which is kind of funny because like in my previous life at a big long only like part of the job is saying this is my highest conviction idea. Right. And so the reason we don't use the term conviction is we try to remove as much bias as possible from our investing decisions. And I feel like if you come out and say,

this is my highest conviction idea, you will automatically anchor to that statement, whether you subconsciously know it or not, or consciously know it or not. And so I think it just makes it harder to change your mind. And I think we all try to be flexible and hold our ideas relatively loosely and be open to change. And then conversely, you can actually have a low conviction idea that has huge asymmetry. And you can say, like, Hey, I think like, like unity is a relatively low conviction idea, but like, there's a scenario where like the metaverse is like this huge thing and, um, they're kind of the driver of it. And I don't know if it's going to happen or not, but it could be a huge stock.

And so I feel like that's, that's the flip side of it is like, not everything has to be high conviction or low conviction. And so that's just a term that we, um, we don't use. All right. And then the last one we have, and I guess, yeah. Uh, what's one piece of advice you have for anyone considering a career in investing besides not starting out uh during a financial crisis yeah um i think just investing um your own capital and like studying the markets is kind of the obvious one and i i wasn't in the position to interview a lot of people um in my my last role and i would say that was like the only disqualifier i ever had in any sort of interview is if i was interviewing someone for kind of more of a junior role and they um they didn't show like a passion for investing

and they didn't already invest their own money, then I think that's kind of a deal breaker. I think you can learn so much from just buying stock in like five to 10 companies. And now the ways to generate ideas, like there's so much out there on Twitter and on YouTube, Reddit, like the ways to go out and find interesting ideas,

they're just like endless now. And so if you can come up with a few hundred bucks and buy and hold them, like don't trade them and try to study the companies and like go through their quarterly earnings and see like what's working and what's not and why you think the stock is moving in one direction or the other, I think is a really good exercise. And even if you don't

honestly can't come up with the capital, just like run a Excel spreadsheet and do a paper portfolio, I think is a good way to learn. And then like the life hack I'll share from that is if you own 10 stocks, certainly like two or three of them are going to end up being good stocks. And so like if you have an interview someday, you can say, hey, I bought Chipotle in 2020 because I thought it was a cool company. And so you'll always have stock stories and some insight to share. And so unless you're like extremely unlucky and like zero out of 10 end up working, you're always going to have something to talk about. And I think that's, it's actually just like a really clever way to have a good idea to bring it into a job interview potentially.

No, that's definitely correct. That is correct. All right. That's all the questions we have. So thank you for joining us, John. Thanks for having me guys. All right. Welcome back in. Thanks again to John Bathgate for coming on. Enjoyed it a lot, but next we have our show notes and i'm going first we kind of go back and forth if you remember from last time uh the we work documentary came out we watched it together it was on hulu memories it was great yeah i remember about it's two years ago now that uh that saga was it was fantastic i'm so glad they made a documentary about it um if you haven't seen it i recommend go get the

hulu free trial whatever they have make up a fake email just go watch it it's great uh some of my favorite parts their executive team i don't even know if it was the executive team but vice presidents vice presidents were all called ceos that was new yeah new they put we in front of everything uh which is maybe a red flag when you're looking at some businesses if they just put you know something in front of ordinary names uh when someone asked them what's the goal adam newman said i want to elevate the world's consciousness adam was a bit of a character a bit yeah uh the the thing is you could see from the evolution at the start he just seemed preppy but at the end he just kind of looked like an alcoholic kind of going crazy at the end of like

a 3 a.m party night uh you're just kind of his you know yeah we're gonna elevate the world's consciousness he seemed constantly like drunk and just partying um and then convincing people to raise billions of dollars yeah it at first i kind of felt like he was maybe a little naive and just kind of wanted to like have a fun company uh yeah it was it was never malevolent but then i think he just got it over his skis by the end he was definitely malevolent at the end yeah because of the jets the trips the drug use funneling sort of the parties that were vc money yeah spending the vc money on like 10 million dollar summer camps that are just giant parties yeah uh some other stuff uh the wife was allowed to elect the next ceo i forgot about that

so i guess his wife flag adam newman's wife if a spouse who technically is not a part of the company is heavily involved uh that's a big red flag definitely look at those related party transactions all right buffett's son was on the board in the 90s i guess that's true big red flag there uh but do you think it so adam newman the whole time i thought gosh this guy's a little crazy and then they tell that story of masa's son saying you're not crazy enough does this just is that like the it's so weird that masa's son like because he's backed some people that are brilliant i like jack ma i really like uh suit kim the coupon founder yeah um but then there's people like adam newman i will okay a broken clock sprite twice a day is that the saying i don't know

if you're making that many investments some of them are going to be right and some of them are going to be terrible good thing for softbank though that they didn't make that 16 billion dollar like 40 percent takeover remember that um when the saudi investment fund i think it was the saudi arabian investment fund backed out yeah who was the majority investor into the softbank vision fund told soft bank to back out um and those are some people you listen to yeah um they they have a history of getting pretty aggressive i'll just leave it at that but yeah that part was fascinating as well yeah and this i i think this documentary just shows the value of being actually cash flow positive especially for some of these young companies because as soon as the funding

dried up it was like the whole party stopped yep and they were all banking on that next round of funding and there were some jokes even made there it's like where are you going to get the money it's like uh masa son and it's like they're like guys if we can just make this next round of funding come in the parties will keep going and then it didn't come yeah what were they they were probably going to raise like five six billion on the ipo i think that's what the numbers were when that went out the door the valuation just cratered i think over the next six months what did it go down to below like five billion dollars and now it's worth around that same amount up from where was it like 50 billion yeah yeah it's uh i mean just a fascinating documentary uh kind of a fascinating

story honestly i would not be surprised if adam newman if we hear about him again he's definitely trying to start some new cults for sure i think that's the other part that we didn't hit on is the fact that they really made it like a cult but out there remember the the the big thing of that was the residential play the we live yeah when they had the anecdote from the guy that went there and he was like i would bring friends over and they'd be like nah yeah i'm never coming back here again and then he's like i left and i realized that it's like living in a dorm that's way too close yeah for like a permanent residence for 30 year olds at first you're like huh that's kind of fun you know meet some you meet some mates maybe potentially brainwashed yeah and he

kind of realized that they they had some cultish behavior um yeah he was a you know he was a profit-like figure it was weird anyway fascinating documentary and everyone should go watch it i think there's a new one uh there's one coming out kind of soon where jennifer lawrence plays uh elizabeth holmes in black bad blood that one i'm looking forward to that one different but quite similar to we were less of a business model more of a fraud but yeah you know they never made any money but all right uh what's your next story okay oh that's not a documentary that's a movie sorry right uh yeah mine is the apple podcast subscription announcement so they announced it this week at their big apple event that they have every year um they are going to allow shows to go

behind a paywall if they want to and offer a subscription this would either be for a whole show partially exclusive content or um you know how some shows do that two-week period where it's delayed i kind of like that model a lot where if you really want to get the premium stuff you get it first but then the free users also get it two weeks later uh either way not sure what the pricing options are i assume it's pretty flexible uh but apple will take a 30 cut of the subscriptions in the first year and 15 thereafter very similar to what they run on the app store so kind of expect it there only question i have seems like a good idea it's fine to give people the option to do this right but can something like this go mainstream in the industry that has so

much supply like little shows like us it see yeah i mean basically they're not saying that you have to go behind the paywall yeah right so it's pretty much a pointless announcement honestly because you have the ability to go behind the paywall but you'd have to do it like if you don't go behind a let's say you choose to go behind a paywall on apple and people don't want to pay for it and they can and you're not exclusive to apple people can go access it on spotify well you just don't release it on spotify right but do people want a mortgage a lot or uh sort of uh alienate part of their audience i mean it's a risk reward yeah for sure um i don't know it just didn't seem obviously spotify is rolling it out now too or something like this um yeah i could

see something like this going mainstream but i honestly since since people can just skip through ads i don't see the problem with ads right now well they're gonna logically they're gonna make it so you can't skip once they get rid of this rss feed stuff um i'm just thinking of that as a spotify someone who knows the spotify business model a lot but the thing you know how like on youtube it's unskippable yeah it just feels like to me that this stuff the podcast industry there's millions of them out there it feels a lot like youtube where they tried to roll into premium stuff and some people use it where they go ad free stuff like that but it's just the supplies there that okay there's like 10 different sports shows or there's 10 different shows on like a

specific sports team if one goes behind a paywall it better be darn good yeah compared to the one and it seems like the advertising business model on podcasts is pretty lucrative if you can get it right yeah i don't mind i mean maybe our listeners hate us for the ads who knows but i mean we have a pretty loyal listener base and it just feels kind of it feels more risky or more harmful to the listeners to say you have to pay for it now yeah yeah and there's no harm to give people the option but i do agree and the the way it's monetized versus like a radio show or cable tv or even streaming ad supported tv it's okay so like it seems like typically you give up like two minutes of advertising for 30 minutes of a show i mean it's not a big give up at all

No, especially not when you can just skip right through them. I mean, some shows, yeah, yeah. Don't skip right through our ads. We've got great advertisers. Yeah, well, I think eventually they're going to make it so you can't. That seems like a pretty easy fix to do for, like, a software development team to do that. Who knows? Could be wrong on that.

But, yeah, especially if you can skip stuff. Some shows do, like, six ads. And it seems like you're kind of reaching the limit of, like, an hour-long show. But I don't know. I don't know. I mean, it didn't seem like a huge announcement to me. I think the ability to offer subscriptions is good. I'm glad Apple didn't choose to, like, hardline it and say you, like, you have to be exclusive if you want to do a subscription, that kind of thing.

I don't know. It seems like a feature, though, and it's not going to be meaningful to Apple at all. No, I mean, it's nice that they're updating their podcast app for the first time in, like, 10 years. That's good for users and creators, yeah. yeah but uh sometimes they just announce this stuff and it's not that big like they announce this stuff all the time apple card apple arcade hey apple card oh brady has one brady has one but the thing is like it's just a tiny take rate you know it's like this might be my anecdotal evidence apple pay so many people are using apple pay yeah we knew that i didn't know that

yeah it's just kind of hidden you know they take it they have a tiny take rate though it's like almost as small as mastercard or visa all right well uh anything else on that um yeah i was going to mention that spotify and facebook have a partnership now uh that you can listen to shows embedded into the the facebook feed while you're scrolling and stuff like that uh do you think this is meaningful at all i only thing that i thought was meaningful is that uh this is one of the only times facebook has allowed advertising from someone else on facebook because when spotify has these shows played on there a lot of the times it's going to be the advertising network that they're setting up which i thought was fascinating remember ek and zuck are buddies

boy they're boys hit them you've seen that picture of him and snoop dog yes and those two and snoop dog and sean parker the crew that's quite the gang so i mean this is just a little you know gift from zuck if you will yeah from the from the overlord but it's interesting to think that spotify and apple are competitors apple and facebook are starting to hate each other now or facebook kind of is getting mad at them for kind of infringing and doing all that stuff i don't really know the details good but that seems like it's good for this fight against apple yeah it seems like if facebook is like all right we're going to partner with spotify that's that's fine for uh for spotify's growth but these partnerships they always not always 90 of the time you get

excited about them and then it's it's more noise than news a lot of the time i feel like most fans have like i don't think consumer habits change that often and more more than likely i'm just going to keep listening to podcasts the same way i always have yes uh inertia is important all right my next story is the housing boom uh so redfin reported this week that 45 percent of homes sold for more than their listing price um interesting stat i think that's the most they've ever witnessed apparently um who benefits from this the most lumber obviously we've seen yeah there's a price that the uh value of lumber uh skyrocket yeah the lumber uh people on finn twitter having a party right now it's maybe my favorite click on finn twitch is the lumber click yeah they're

having their day they yeah i don't know there's that uh kind of weird mix of companies that own each other um i forget the name it's like valentine strong and uh green first or something you know they'll own each other i was too confused i haven't looked into it but yeah they're doing well happy for them um what do you think about home builders is this uh sort of an industry worth looking into i mean supply is like for anyone that hasn't kept i I think real estate is probably like the financial market that most people pay attention to, I figure. True, true. Do you think that this is just like – this is the way it is now?

Are people going to be worried about buying homes? Do you think there's going to be sort of would-be home buyers kind of scared to get in because they think it's some top? Yeah, that's kind of weird. The psychological aspects of it can get weird. It seems like people get more aggressive the more prices get up because they get FOMO. they're like oh i'm gonna miss out on this price it's like with investing too it kind of is confirming my priors that buying a home is something i don't want to do uh because got to build equity yeah you got to build equity man you know what i'm comfortable buying some you know

building them around all right and our portfolio but i don't know home builders should be fine it seems like commercial real it's the same deal as that's what's been going on residential real estate there's a lot of change going on right now so that means that there needs to be a lot of things renovated and built infrastructure plan should help with this a lot if that gets passed i mean i don't know much about home builders i know a lot of times they can let it up i mean residential REITs are obviously going to do fine not something i'm an expert in um i do own i guess boston omaha which has a lot of exposure to home builders so i'm not unhappy with that i think i'm very happy with that in my personal account right now yeah nothing nothing uh no no big takes though

it's not something i know much about isn't it it feels strange though because everyone's like oh like uh you know every it feels like every homeowner is going through that process like wow i could sell my house for so much and then they start to think like oh wait then i gotta buy one for so much yes uh so i don't it's probably one of the biggest FOMO markets too and i think although now that there has been a housing bubble it's like the classic take to be like oh housing prices are going up it might be a bubble i'm gonna wait till it collapses to buy a house yeah which is this bad cycle bad uh psychology yeah it's i forget whatever you know classic thinking fast and slow thing there i don't know i don't know next story what do you

have okay this is a fun one this would be more of a uh kind of a hot water for doing the classic ones uh this is a spack quote here uh see what you think um this is from i believe altimeter capital who has a SPAC program going now and he said i think it was the founder but it's somewhat from there um quote we view SPACs as an open source api unlocking access to the public markets and then one of our favorite accounts is how i saw it uh jerry capital quote tweeted it with ffs which means you know for blank sick yeah you can do you can use your magic there could be but yeah it seems the problem is i kind of like altimeter uh i like brad gersner but i don't know man spack and so the spack vehicle i think is a good thing we've we've had the same

view on this the spack vehicle is a good thing the uh availability or the ability to take companies public without the proper due diligence is a bad thing and i think a lot of that is going on here too much of a good thing i don't know if they're even a good thing though anymore i think i've changed my opinion on this what's the 20 look at just the fees it's just a lower percentage yeah okay 20 fee why not just ipo you people are like they say this is the argument Oh, it's too expensive, the IPO. The highest IPO fee is like 7%. If you're a big company, it's like 2%, 3% or whatever.

Okay, let's do a SPAC. It's 20%. I mean, if they lower the fees, great. But right now, it just seems like a way for sponsors to get rich and screw other investors. I mean, those warrants too, like it's bad. I don't know. What are some positives, though, you think they could come out with this?

Because here's kind of the scenario I'm thinking. there's if this flood of SPACs sustains itself over the next year and beyond like I think there's some ram there's some things that could happen that people like you know some second order effects I'm not sure exactly what there are what they are but what are some potential positives and negatives more public companies that's a positive but what if what is my only positive but what if what if more than their fair share of frauds now that sucks that does suck but those frauds would have been private anyway so i i mean yeah whatever maybe they're gonna pull capital from retail investors but let's say five percent of those specs are good companies that would have chosen

to stay private uh yeah that's better i mean it's just you just got to be able to filter through it it is for i mean it's overall like if they've if a company if i'm looking into a company and it's gone public via SPAC it is a concern for me and and I feel like the more SPACs I look at or after a long enough time people start to realize like how much the SPACs are bullshitting and it's starting to come out no they're all gonna with a lot of companies they're all gonna grow revenue 100 by 2024 this is guaranteed all right I think I just think the negatives outweigh the positives now I'm just I'm off too much fraud sorry go to your next story okay there was an etf crime this week a big i mean a big etf crime uh last week a new etf launched called

the american conservative value etf wait first i love how it's value etf you know uh but it's not like value it's not like value stocks it's like conservative value it's the true deep value uh the ticker is acvf i've got a few quotes here it says the first etf will attempt that will attempt to align investments with the beliefs and values of politically conservative investors we boycott the worst offending companies that do not align with our conservative values if you are still reading you are likely a fellow conservative our belief is that we all either unwittingly or begrudgingly support the liberal agenda with our current investments that's the kicker there whether through mutual funds etfs or 401ks we all unfortunately own u.s companies

that support the liberal agenda whenever i hear the words liberal agenda i always think of mac from Always Sunny in Philadelphia. Yeah, there was a good Ramp tweet this week about the meat thing. I don't know what it was. I mean, this just, first of all, there's one of two things that I think is going on here. Do you think this is people trying to appeal

to political views just to get money? Yes. Or do you think it's people that seriously believe this? No. You think it's just kind of a play for funds? Yes, it's a total, I mean, yeah, they just want money. I don't know. they're just trying to play into this is just like uh never mix politics and investments yeah

i'm not going to tell anyone my political views are but yeah don't mix politics and religion with investing i'd be just as against uh and like an anti-conservative woke a w-o-k-e that yeah i'd be it's just a bad idea i mean what are you gonna do short google facebook twitter i don't know it's all opinions too so it's not there's no there's no quant i mean it's like it's almost as much bullshit and maybe this will anger some people it's almost as much bullshit as esg almost not as much the thing is let's say they took down let's say this american conservative whatever it is the conservative value etf let's say this underperforms let's say this drops 50 are people still going to be happy saying like we stuck it to them i don't know google's up like 100 again

end in the next five seven years like did you really stick it to them i don't know dude i i um i'm fascinated to see what the holdings are and i'm fascinated to see how it does you think facebook's who's printing billions in cash is going to be upset that you aren't supporting them with your 401k if it if anything something like this would make sense as a vc but at this level of liquidity and uh oh you mean like against young companies that are private companies that like No, if you're starting startup investments. It would technically make sense because that's how you could, you know, if you had some views or whatever. But VCs are doing that.

I mean, VCs are investing in how they see the world anyways. So I guess that. Yeah, I mean, but, you know, this would just be more blatant. Yeah. All right. That was the ETF. Do you know what their fee was? I have no idea.

Probably like a 3% expense ratio. Yeah, hopefully it's 3%. That'd be egregious. i think yeah if you're going to align your politics with your investments don't that's underperformance i think is inevitable yeah it's just like yeah it's like with a lot of stuff i mean it's not affecting anything i don't know yeah all right what's your next one okay shopify and pinterest partnership i mentioned this before side note you know i mentioned this earlier in the show it seems like all these shopify

especially partners with every company imaginable it's really not a big deal but this one was interesting uh here's a quote from the tweet from pinterest now more than 1.7 million shopify merchants around the world can bring their products to pinterest and turn them into shoppable product pins seems like a great idea first question any positives or negatives here for either company uh i don't see the negatives i would say they're synergies it feels like i don't know it feels like a logical fit i i would if someone told me this has been going on for two years i would have believed them i didn't know that well they already had a partnership that's just making it global now for everyone uh okay well uh yeah it seems like a positive for both shopify and

pinterest okay um yeah i think they should they ought to just become shopify i can just buy them yeah the total social commerce play yeah so i think the only negative possibly over the long term you know is if any of these companies try to like move on and compete with each other i think pinterest may have the advantage because you're taking two steps here to get to the customer going through shopify then pinterest then the customer wait sorry repeat that if you're a merchant you go through shopify then through pinterest then you get to your customer yeah okay yeah if you're the customer you're going through pinterest to get to shop oh no i'm talking about you as a merchant you're going through shopify then pinterest to get to your customer

Yeah. In the short run, right, this increases demand for Pinterest because it gets ads, right, more ads on Pinterest and more GMB. I assume they get a cut of that. And then Shopify obviously gets more merchants. Sorry, sorry, not more merchants. They get more GMB, which they get a cut of. And I'm assuming that the ads on Pinterest are better suited than, you know, Facebook, Google, especially better than Snapchat and Twitter. So probably good ROI on that. But I think in the long run, am I wrong in thinking that there's no reason Pinterest couldn't replicate Shopify's tools for merchants? Is that something that doesn't make sense? I think it's harder than just saying we're going to do it.

I mean, Shopify's built out a pretty holistic suite of tools. And that would obviously take a lot of time. So just the switching costs and going everywhere else too. Yeah. I mean, there's obviously a lot of development costs in there, but do I think, yeah, I think Pinterest, I think Pinterest probably should have tried to do something in-house before kind of giving into a Shopify partnership. They got the funds to do it, yeah. They're big enough. Yeah.

I wonder if merchants are, like, exclusive to sites. Hmm, I don't know. You know what I mean? I don't know. Like, do they, are they willing to set up, like, an Instagram or, I don't know if Instagram has this where it's, like, direct shopping through Instagram. They have that now, yeah. Will they do that, a Shopify site, a Facebook site, stuff like that, like, all at once? Yeah, I don't know who, okay, like, yeah, it just feels like Instagram and Pinterest have more of an advantage than Shopify.

I could be reading it wrong. I don't know. I don't know the companies in and out, but. Yeah. It's a tough one. I mean, I think maybe nothing comes of this, like every Shopify partnership. Yeah, well, it seems like... It's just funneling them to a website.

You could just say, like, we are now allowing embedded links. Yeah. Sweet. Yeah, and I guess it's, in all reality, I'm just trying to think of some downsides. I think, you know, most likely this is good for both companies. Yeah. I think a merger would be the ultimate. That would probably form a very strong social commerce company.

Yeah, what's Pinterest trading at? I mean, they're both trading at very high valuations. I'm guessing that combined, just off the top of my head, I'm guessing it's like $150 billion. Yeah, Shopify would have to issue a lot of stock. Pinterest market cap is $49 billion, so yeah, a lot of stock would have to be issued. But two premium value companies going together, I don't know, it doesn't change much. All right, my next story, Square and ARK this week teamed up to write their Bitcoin paper. ARK Invest.

and people always get upset when we talk about ARK Invest because we're ARK haters or whatever or we question the liquidity of the funds and whatever they own each other, they own their own funds yes but now I'm going to be totally honest I did not read the paper

so I might be totally uninformed and maybe I should have made this point but there was a lot of stuff that came out of this of how Bitcoin is not that bad for the planet that kind of thing energy usage as far as energy usage goes so i went and kind of just looked up a few points um university of cambridge says more than half of a percent of the world's electricity consumption

is used in mining bitcoin uh that's about the same carbon dioxide emissions as a small country like sri lanka or jordan according to tech crunch um right now renewable energy makes up 39 percent of total mining energy consumption okay so it's less than half jack dorsey tweeted this week bitcoin incentivizes renewable energy okay they're incentivizing is so different than using i don't know more than half it incentivizes renewable energy but the cheapest form is not renewable and people choose most of the time to use a non-renewable energy but it incentivizes it and so people were kind of tweeting back at him someone said uh smoking encourages cancer research that's a good analogy i think yeah it just

i actually like jack dorsey this feels like it was jack trying to rationalize a decision that he already made and can't go back on potentially it's like he was so committed to bitcoin that if He backs out now. I mean, he's already put, what, 5% of the square balance sheet on Bitcoin? And he's been a lover of Bitcoin for years, yeah. And so now that all this stuff has come up, it seems like, well, he had to find a way to justify that purchase and make sense or pretend that it's good for the environment. When it literally isn't. More than half the time, right?

Yeah. Okay. Here's the two points I have in here. one it says you know uh 39 of mining energy or sorry mining is using renewable energy that's great but look if you're using 39 to create 61 is not i know i know but also 39 of it is used to create magic beans like that's just that's just energy that's just energy sorry I don't want to insult anyone. Yeah, think of some of the cryptos that are so irrelevant.

It's not just Bitcoin, Mike. I don't even want to say the one, the funniest one from last week. That one was amazing. Okay, so the point I'm trying to make is that energy is not being used for anything right now. It's just magic beings that are going up in value. It could be used to delight homes and stuff like that. Also, I couldn't take the paper seriously. I actually read it just because I spend my time hating on Bitcoin and ARK Invest like a curmudgeon.

And it said in the paper that something about creating newly created electrons was a quote that they could. So the whole point is that since a lot of the solar and wind stuff is unreliable, that when it's and so like during peak hours, when it's generating energy, it has more than people need. And there's no place to store it right now, which is why batteries are very important. they said that when the solar and wind power that's being generated is there's too much it's over the capacity that's it's needed it could go back to mining bitcoin and it's like yeah but it's still mining something useless and they said this thing about newly created electrons and it's just not possible guys i mean electrons can't be created they're just there also what you tip like to any other bitcoin bitcoin owners that are listening i apologize but right now

this has very little utility how many people are accumulating bitcoin to spend it look look i'll just say this uh i was at like a golf fundraiser with people that are you know most of them are people like 15 60 years old no one like the stuff that you're reading on twitter in the bitcoin community and stuff like that it's so far from actual reality it's insane like we're even farther into it like with fin twit kind of with stuff like that where it can be a bubble like do people care about this stuff so much oh my god like uh do you see this new defy announcements like you guys are not i'm sorry we're living in actual reality it means nothing to 99 main street doesn't care and if it is main street there's buying dogecoin like the only reason i have anyone all any of my

friends uh talk about crypto is when they're just buying dogecoin because it's a joke like 50 dollars worth yeah it's insane to me i mean but this mining stuff is even worse because it's not even logical like i mean either it's it's useful or it's not it's justification it's it's such a waste of energy i can't get over it's such a goddamn waste of energy all right what's your story okay biden nicotine regulation this one's interesting government is apparently proposing to curb nicotine content in cigarettes there's a bit of a catch-22 because you know with tobacco stocks if there's more volumes because people need you know kind of a light beer situation that could actually be beneficial um stocks obviously i could hit majorly because

of this and without hitting any like moral or whether you agree with the legislation or talking about whether it's right to invest in tobacco stock is this just the price of admission to own these things because i saw a lot of people get shaken out by it and it seems like well yeah guys this is why they outperform you know right uh yeah well so for one it was they are going to propose they're thinking about proposing this proposal like that doesn't mean it's going to pass and they haven't even proposed it so first of all and i don't think it would pass because there is the negatives to it is let's say people really wanted go study prohibition let's say people really wanted the high nicotine cigarettes or high uh yeah high nicotine cigarettes they'll

get them through sources that aren't uh controlled by the government which means government doesn't get taxes on those and the regulation to make sure it's safe um yeah it's obviously you know long-term whatever but like dangerous kind of like with those old vaping things a few years ago it uh and then there is the the sort of school of thought that if you lighten the nicotine load maybe people are just going to smoke twice as much to get the same buzz yeah um every single time legislation's like proposed or thought about being proposed people are like good finally cracking down listen legislation has never it's been imposed for 30 years now legislation has never killed ultra ever i mean the the marketing ban you think that

would do something yeah well and there's other companies phil moore's bti um but yeah you kind of this too like does it make sense that if they banned or neutralize this type of stuff would the cigarette cigar industry end up being more like prohibition like more dangerous than it was beforehand is that kind of what you're saying i think so i mean i think some people i mean uh it's sort of a political take but i think some people are consenting adults that are just choosing to smoke yeah uh cigarettes um they understand that away they do understand the risks i would say for the most part uh taking away a controlled source for that they're gonna go they're just gonna look for other places to find it yeah kind of interesting the non-combustible

stuff you know those nicotine pouches yeah and let's say everything switch to those on products or Zins, that kind of stuff, that's 80% operating margin. Yeah, they got better margins for sure. Yeah, so I guess people wouldn't be upset with that. Yeah, I guess nothing else really. Yeah, I guess you understand the stuff about agent and vendor and stuff like that.

But for people that are... I just don't think it's going to pass. I really don't. I understand the concerns. I obviously don't advocate for the product, but to say this business model hasn't been completely, like hasn't withstood the test of time is naive it's been around i think philip more specifically

has been around for more than 150 years yeah i'm not sure if the name but it's the same company you know same brands and you don't think people were saying the same stuff in 1999 about how bad cigarettes were uh i'm with you the the customers know i know the customers are all aware again if they're adults they all are all aware um it seemed yeah it's weird that and it just seems to me again like the price of admission for owning these things like there's going to be legislation that's that's the big risk i mean it only dropped like five percent yeah it sounds like more noise than news hey dividend yields up it's okay yeah as long as the stock's down and look look don't But don't hate on us for not being anti-cigarettes.

Don't want to go over that ESG stuff again. But don't hate us for that. No more stories, right? Nope. All right. That's going to do it. Thank you all for listening. We are general partners at Ars Capital.

So partners there may have positions in the securities discussed on this podcast. We are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. Thank you all for listening. We'll see you next week. Thank you.